The gap between purchase prices and rents continues to widen. While prices for single-family homes and condominiums are rising steadily, rents are stagnating.
The multiplier is increasing
One factor fueling the real estate boom is the coronavirus—Dr. Bernd Leutner, managing director of the Hamburg-based research institute F+B, explains that the pandemic has shifted demand from the rental market to the homeownership segment. A key driver of this trend is regional investment in properties that offer a relaxing environment during the pandemic, for example, due to their proximity to nature. Accordingly, the F+B German Housing Index for the first quarter of 2021 reports a 4.3% year-over-year increase in the nationwide average for residential real estate prices and rents. Rental prices, on the other hand, are stagnating. The growth rate of asking rents fell by -0.3% year-over-year compared to the first quarter of 2020. Furthermore, the multiplier is used to reflect the relationship between the two figures. It indicates how many years’ worth of annual net rent (excluding utilities) are required to purchase a property. In other words, the result answers the question of how many years it takes for the purchase to pay for itself. According to the annual, multi-part study “Postbank Housing Atlas,” this figure averaged 25.7 times the annual net rent in 2020—1.7% higher than the previous year. When rents are low, the multiplier rises, and it takes significantly longer for buyers and investors to achieve a return on their investment. The trend in Berlin is particularly striking. There, the multiplier rose from 30.8 to 39.7 between 2017 and 2020. At the same time, the multiplier is significantly lower in the surrounding counties.
The Top 50 Cities – Students Stay Home
According to F+B, new rental rates have fallen compared to the previous quarter in more than one-third of the 50 most expensive German cities. When compared to the same quarter of the previous year, the research institute found real declines in rental rates in half of the cities. For the university cities of Freiburg, Heidelberg, Tübingen, and Konstanz, the experts conclude that low demand from students is having a significant impact. Due to the pandemic, courses are being offered online, so students have postponed moving away from their hometowns for the time being. To create incentives nonetheless, landlords lowered asking rents in the first quarter of 2021. “Serviced apartments” and micro-living options have been particularly affected.
The Consumer Price Index is rising—but rent prices are barely changing
In contrast to the decline in rental prices, however, F+P reports a 1.2% increase in existing rents compared to the same quarter of the previous year. They have also risen by 0.3% since the beginning of the first quarter of this year. Nevertheless, experts believe that rents are no longer driving prices. This is related to the Consumer Price Index (CPI). Over a twelve-month period (March 2020 to March 2021), the CPI rose by 1.7%. This means that the trend in existing and asking rents is significantly below the index.
Is it no longer worth buying?
When rents rise at a slower rate than home prices, the question always arises: Is it still worth buying an apartment—either for personal use or as an investment? The German Economic Institute (IW), in collaboration with ACCENTRO, examined this question in depth in the ACCENTRO Housing Costs Report. The result: In 399 of 401 German counties and independent cities, buying is cheaper than renting. On a national average, the cost advantage is as high as 56 percent, and even in high-priced metropolitan areas, the cost advantages are well over 40 percent. This is primarily due to low interest rates. As a result, homeownership remains affordable, and the leverage effect from favorable financing continues to make the rental business attractive.
